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Imperial wants extension for Arctic drilling

Imperial Oil Ltd. wants more time to fulfill its ambitious drilling commitments in the far north, noting that two years have been lost while the National Energy Board struggles with rules for Arctic drilling.

The company is seeking an extension on its $585-million, nine-year exploration licence in the Beaufort Sea. It and parent Exxon Mobil Corp. are partners in an ambitious deepwater Beaufort program that they hope will find enough crude oil to justify commercial development in the remote and ecologically fragile Canadian Arctic. But the companies are unable to proceed until the NEB clarifies its drilling rules.

Company spokesman Pius Rolheiser said Imperial has indicated to Indian and Northern Affairs Canada (INAC), which licenses Arctic oil and gas exploration, that it will apply for an extension on its lease, signed in 2007, in order to fulfill its commitment to spend $585-million on exploration. If it fails to meet that spending target by 2016, the firm would forfeit a $146-million deposit.

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"We have not formally made the [extension]request but we have advised INAC of our intention to do so to reflect the delays that our activities have experienced as a result of regulatory uncertainty," Mr. Rolheiser said in an interview.

Offshore oil drilling is stalled in northern Canada and Alaska as regulators on both sides of the border grapple with the lessons of the BP PLC blowout in the Gulf of Mexico and the potential for a horrific accident in the Arctic that would do irreparable damage to the environment.

The reviews have delayed exploration programs in what is considered one of the best remaining prospects for finding large quantities of crude oil, affecting major oil companies like Imperial and Exxon, Chevron Corp., Royal Dutch Shell PLC, and BP itself.

Imperial has been cooling its heels for a year now, and cannot expect clarity for at least another six months while the federal regulator completes its review.

The NEB has commissioned reports from experts and will hold a series of hearings, starting with a meeting later this month in Inuvik, NWT, with the Inuvialuit Regional Corp. It has set a deadline of Jan. 31 for people who want to arrange a meeting with its panel. Industry officials are privately expressing frustration with the board's slow pace.

A year ago, Imperial asked the regulator to waive the requirement that, in order to drill in Arctic waters, oil companies must have the capacity to complete a relief well in the same season as an initial exploration well. The rule is meant to ensure a blowout doesn't spew crude under the ice over a long winter season while the company is unable to kill it.

The company complained it had already invested $150-million on seismic and other pre-drilling activity in the Beaufort, and needed to make "significant additional investment" to obtain an Arctic-capable drill ship and complete a well. The regulatory delay "would further increase the costs and add to the already onerous inhibitions to development of Canada's Arctic resources," it warned.

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Instead of dealing with Imperial's request, the NEB initiated a comprehensive review of the same-season relief well requirement that was just getting under way when the BP Macondo well blew in April. In May, the board responded to the Gulf of Mexico disaster by announcing a wholesale review of regulations.

Other companies are also eager to pursue their exploration programs. Last summer, Chevron won the right to explore another parcel of the Beaufort with a commitment to spend $103-million.

"We need clarity on the regulations that will govern exploration and development and until we get that clarity it's difficult to see how we can move forward with any plans," Chevron spokesman David MacInnis said. He added, however, that the company is supportive of the NEB review.

Shell had intended to begin drilling in shallow water in the Arctic last summer, but was forced by the U.S. regulator to put its activities on hold. The stoppage persists, even as Washington has lifted the moratorium on deepwater drilling in the Gulf of Mexico. However, environmental groups insist that before exploration can resume, industry and governments must have a better understanding of the impact of resource development on Arctic marine life, and that oil companies must be required to locate a full complement of equipment in the region to deal with blowouts.

Washington-based Pew Environment Group released a report this week that urges the Obama administration to maintain its current stoppage in U.S. Arctic waters until fundamental questions can be answered and the industry is better prepared to deal with accidents.

Canada's Arctic is equally remote, and the industry is just as unprepared to deal with a major spill there as it is off Alaska, said Trevor Taylor, policy director for Oceans North Canada, which is affiliated with Pew Trusts.

Story continues below advertisement

Imperial Oil has served notice to Ottawa that it needs an extension on its $585-million, nine-year exploration licence in the Beaufort Sea, as concerns over Arctic drilling have resulted in two years of regulatory delays by the National Energy Board.

Imperial and its parent Exxon Mobil Corp. are partners in an ambitious deepwater Beaufort program that they hope will find enough crude oil to justify commercial development in the remote and ecologically fragile Canadian Arctic. But the companies are unable to proceed until the NEB clarifies its drilling rules.

Company spokesman Pius Rolheiser said Imperial has indicated to Indian and Northern Affairs Canada (INAC), which licenses Arctic oil and gas exploration, that it will apply for an extension on its lease, signed in 2007, in order to fulfill its commitment to spend $585-million on exploration. If it fails to meet that spending target by 2016, the company would forfeit a $146-million deposit.

"We have not formally made the [extension]request but we have advised INAC of our intention to do so to reflect the delays that our activities have experienced as a result of regulatory uncertainty," Mr. Rolheiser said in an interview.

Offshore oil drilling is stalled in northern Canada and Alaska as regulators on both sides of the border grapple with the lessons of the BP PLC blowout in the Gulf of Mexico and the potential for a horrific accident in the Arctic that would do irreparable damage to the environment.

The reviews have delayed exploration programs in what is considered one of the best remaining prospects for finding large quantities of crude oil, affecting major oil companies like Imperial and Exxon, Chevron Corp., Royal Dutch Shell PLC, and BP itself.

Imperial has been cooling its heels for a year now, and cannot expect clarity for at least another six months while the federal regulator completes its review.

The NEB has commissioned reports from experts and will hold a series of hearings, starting with a meeting later this month in Inuvik, NWT, with the Inuvialuit Regional Corp. It has set a deadline of Jan. 31 for people who want to arrange a meeting with its panel. Industry officials are privately expressing frustration with the board's slow pace.

A year ago, Imperial asked the regulator to waive the requirement that, in order to drill in Arctic waters, oil companies must have the capacity to complete a relief well in the same season as an initial exploration well. The rule is meant to ensure that a blowout doesn't spew crude under the ice over a long winter season while the company is unable to kill it.

The company complained that it had already invested $150-million on seismic and other pre-drilling activity in the Beaufort, and needed to make "significant additional investment" to obtain an Arctic-capable drill ship and complete a well. The regulatory delay "would further increase the costs and add to the already onerous inhibitions to development of Canada's Arctic resources," it warned.

Instead of dealing with Imperial's request, the NEB initiated a comprehensive review of the same-season relief well requirement that was just getting under way when the BP Macondo well blew in April. In May, the board responded to the Gulf of Mexico disaster by announcing a wholesale review of regulations.

Other companies are also eager to pursue their exploration programs. Last summer, Chevron won the right to explore another parcel of the Beaufort with a commitment to spend $103-million.

"We need clarity on the regulations that will govern exploration and development and until we get that clarity it's difficult to see how we can move forward with any plans," Chevron spokesman David MacInnis said. He added, however, that the company is supportive of the NEB review.

Shell had intended to begin drilling in shallow water in the Arctic last summer, but was forced by the U.S. regulator to put its activities on hold. The stoppage persists, even as Washington has lifted the moratorium on deepwater drilling in the Gulf of Mexico.

However, environmental groups insist that before exploration can resume, industry and governments must have a better understanding of the impact of resource development on Arctic marine life, and that oil companies must be required to locate a full complement of equipment in the region to deal with blowouts.

Washington-based Pew Environment Group released a report this week that urges the Obama administration to maintain its current stoppage in U.S. Arctic waters until fundamental questions can be answered and the industry is better prepared to deal with accidents.

The Canadian Arctic is equally remote, and the industry is just as unprepared to deal with a major spill there as it is off Alaska, said Trevor Taylor, policy director for Oceans North Canada, which is affiliated with Pew Trusts.

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About the Author
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

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